The Real Reason Wireless Carriers Love Android: Google Is Paying Them To

Wireless carriers don't just like Google's Android phones because they're the next best thing to Apple's iPhone: They also like Android because Google is paying them to like it.

PaidContent's Tricia Duryee reports that Google's deals with mobile carriers (and some phone makers) include an advertising revenue sharing agreement, provided they pre-install Google apps like Search, Maps, and GMail on phones. This should come as no surprise, given how long phone and PC companies have been paid to pre-install stuff. (Hello, free Prodigy trial?) MediaMemo's Peter Kafka adds that he hears it's a "substantial" revenue share.

As Duryee notes, we doubt the deals are generating much money for either Google or the carriers yet -- not enough searching or advertising to support any significant cash flow yet -- but it's the thought that counts. Carriers are scared of becoming dumb pipes, and any time Google -- not long ago, the phone companies' biggest fear -- wants to share revenue from advertising and application sales, that's a welcomed gesture.

(Carriers used to charge developers 50% or more from the apps they sold on dumb phones like the Motorola Razr; that's revenue that the iPhone App Store and others wiped out, which is one reason carriers got scared of App Stores. But if Google is funneling that revenue along to the carriers, it's going to make them happy.)

This will make it harder for Google to EVER make money off Android. Besides trying to sell phones like the Nexus One direct to consumers -- which isn't working very well -- its main hope is to make money from advertising. If it's sharing a "substantial" amount of that revenue with carriers, it's going to take longer for Google to make much money from Android. But this is a very long-term project for Google, and given that it's in a land race with Apple and Microsoft and RIM and Palm, it's smart to spend now for platform share.

Microsoft will likely (we think) match these sorts of deals when its Windows Phone 7 Series ships later this year -- it already knows it needs to spend big to make itself relevant, so we wouldn't be surprised to see it even outspend Google for users. That is what it's doing in search, with Bing, after all.

This is an even more troublesome situation for Palm, which has no ad revenue to share, and is increasingly competing with Google phones for shelf space and carrier attention. But Palm's biggest problem is that people don't want to buy its phones, and not that it can't pay carriers a dollar or two per subscriber. It's similarly lousy for BlackBerry maker RIM, but RIM also has different cards to play with carriers.

This probably doesn't matter much to Apple. Phone companies still want to sell the most phones, no matter which label is on them, and the iPhone is still the hottest phone.